“The continuing dispute between the Palestinian Authority and Hamas over electricity, payment of salaries and the other critical issues have significantly aggravated the situation in Gaza,” the UN Special Coordinator for the Middle East Peace Process (UNSCO) said in a report.

“Palestinians in Gaza, who live in a protracted humanitarian crisis, can no longer be held hostage by disagreements, divisions and closures,” it said.

Last week, a Palestinian official said the Ramallah-based Palestinian Authority (PA) will stop paying for electricity supplies to the Hamas-run Gaza Strip.

He said the move is part of PA's efforts "to end internal Palestinian divisions by pressuring Hamas to relinquish [governance of] the Gaza Strip”.

The PA, which is led by the Fatah movement of Palestinian President Mahmoud Abbas, and Hamas have been at odds since the latter seized control of Gaza in 2007 following bloody infighting.

The situation escalated after Israel imposed a crippling blockade on the Gaza Strip, home to more than two million Palestinians, greatly affecting livelihood in the seaside enclave.

“Gaza is facing a downward spiral of de-development, while the people in Gaza are caught in a cycle of humanitarian need and perpetual aid dependency," the UN report said.

It warned that the lack of progress in resolving the Palestinian-Israeli conflict impedes Palestinian development.

“The institutions of Palestinian governance remain vulnerable to political instability and require affirmative steps to protect and advance state-building efforts," said the report, which will be presented to the Ad Hoc Liaison Committee (AHLC) at the bi-annual meeting in Brussels on May 4.

U.S.-sponsored peace talks between the Palestinians and Israel collapsed in 2014 over the latter's refusal to halt settlement activities in the Palestinian territories.